What contributed to school pension problems?

The percentage of payroll that school districts across the state are required to pay into the school employees' pension plan has increased steadily since 2009.(Photo: Sean Heisey, York Daily Record)Buy Photo

School districts continue to see required pension contributions climb higher and higher each year — but how did that happen?

Districts are required by the state to contribute a certain percentage of payroll — 32.57 percent — to the school employees pension system, known as PSERS. Districts are then reimbursed for at least half of those costs by the state. School employees contribute an average 7.5 percent of their pay.

The district contributions have escalated dramatically in the past seven or eight years, to make up for years of the system being underfunded. That under-funding resulted from a combination of things, over years.

In early 2001, coming off of years of historic economic growth, the state Legislature took steps to increase benefits for public employees as well as lawmakers. But the economic picture soon changed, and the PSERS system suffered a decrease in investment returns, says a 2012 report on the pension crisis.

That should have increased employer contribution rates, but the state took action several times in the early part of the decade to avoid steep increases and keep contribution rates artificially low. The state had a habit of taking contribution "holidays" even decades earlier, according to the Pennsylvania School Boards Association.

The 2008 recession took another toll on the pension system's investments, the state report says. By 2011, both PSERS and the pension system for state employees had a combined unfunded liability of $41 billion.

Around 2010, pension reforms were instituted to begin to tackle the problem. Controlled employer rate contributions were set to start making up for the years the state and schools weren't contributing enough. The Legislature also reduced some pension benefits for new employees and created a "shared risk" provision to allow for increased employee contributions, if investments fell short, according to the state report.